Hotel revenue falls for first time in nine years

Hotel room revenues will fall for the first time in almost a decade this financial year, as competition heats up amid a wave of new openings, according to a leading report.

Revenue per available room - revPAR, the key industry performance benchmark - is expected to contract 2.5 per cent in fiscal 2019 "following eight years of consecutive growth", consultants Dransfield said in their Hotels Futures 2019 Report.

The report shows that supply of new hotels grew three times as fast as demand this financial year, despite a rising number of overseas visitors, albeit with Chinese tourist numbers starting to wane.

"Construction activity has doubled this year as we move closer to the supply arrival peak in FY2022. Rooms under construction now make up 49 per cent of the total pipeline [of 40,000 rooms]," said report author and Dransfield founder Dean Dransfield.

This pipeline is expected to increase to 43,000 hotel rooms delivered over the next nine years with Melbourne assuming the mantle this year from Brisbane as having the "largest live pipeline of all the capital cities".

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revPAR growth, which was 2.6 per cent in fiscal 2018, is expected to be flat over the next two years before growth returns.

The latest update from Dransfield shows that hoteliers mostly held firm on asking prices with an unchanged $198 daily rate expected over the year, but that occupancy levels will fall two percentage points, to a still high 78.4 per cent.

All the capital cities, apart from Melbourne which was flat and Hobart (which surged 8.9 per cent) witnessed declining revPAR over the past 12 months.

In Brisbane, where a host of new hotels have opened recently including a W by Marriott, revPAR is forecast to fall 4.9 per cent in FY19 ahead of Sydney and Perth (down 3.8 per cent) and Canberra and Adelaide (down 2.7 per cent).

Mr Dransfield said growth in Sydney was being constrained by "nervous hoteliers not just missing rate growth opportunities, but actually reducing them".

Recently, hotel tycoon Jerry Schwartz implored his hotel managers not to cut their rates in a theatrical display at a Melbourne hotel conference.

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The biggest fall was recorded in Darwin with revPAR expected to tumble over 20 per cent. Both Cairns and the Gold Coast are expected to unwind some of the gains of the previous year.

Melbourne, where a host of new hotels are in development including a W, Ritz-Carlton and two Hilton, proved the most resilient with its calendar of big events helping it absorb new supply.

Mr Dransfield said "rate competition" could emerge in Melbourne given "sustained supply additions over the next five to six years" while investment in tourism infrastructure and improved demand drivers would assist a recovery in Brisbane.

Medium term, the outlook is for almost no revPAR growth nationally until 2021 but for growth to resume after that led by Brisbane, Perth and the Gold Coast.

Mr Dransfield said a positive supply and demand equation and sustained high occupancy levels "will create rate growth opportunities" with revPAR growth expected to average 3.3 per cent annually between 2019 and 2027.

By then a night in a capital city hotel will average $259 and with occupancies rising to 82 per cent.

On the investment side, Dransfield counted $700 million of hotels sales over the first five months of 2019 after $1.7 billion of deals were recorded in 2018.

"We expect transaction activity will increase in the next two to three years as capital flows, which are peaking in the development space, transfer back to sales as developers recycle the capital for new projects," Mr Dransfield said.